Today's Report (12/22/2021)

Real gross domestic product (GDP) increased at an annual rate of 2.3% in the third quarter of 2021, according to the "third" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 6.7%.

The “third” estimate of GDP released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 2.1%. The update primarily reflects upward revisions to personal consumption expenditures (PCE) and private inventory investment that were partly offset by a downward revision to exports. Imports, which are a subtraction in the calculation of GDP, were revised down.

The increase in third-quarter GDP reflected the continued economic impact of the COVID-19 pandemic. A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased.

The increase in real GDP in the third quarter reflected increases in private inventory investment, PCE, state and local government spending, and nonresidential fixed investment that were partly offset by decreases in exports, residential fixed investment, and federal government spending. Imports increased.

What Is It?

The GDP measures how fast or slow the economy is growing. GDP reflects the final value of all output in the US economy, regardless of whether a product was sold or placed in inventory. This is the chain-weighted version, which uses different goods from the previous year as a measure of GDP for that quarter.

A quarterly percent change at an annual rate shows what the percent change would be if the quarterly rate continued for four quarters. It is computed by compounding the quarterly rate for four quarters.

What Are The Fundamental Effects?

A higher real GDP improves the standard of living for Americans, however, a GDP growth due to inflation erodes living standards because people pay more for the same. The GDP can be used as a report card for the White House and Federal Reserve to view how well or poorly their policies are working.

How Does It Affect The Markets?

CURRENCY - Robust economic activity can firm up interest rates, which increases the demand for the Dollar. If inflation accelerates and stays high, it can lower the US’ competitiveness in the world and worsen trade.

STOCKS - A healthy economy generates more business earnings, while a sluggish business environment depresses sales and income. However, higher prices will erode household purchasing power and may force interest rates to go higher.

BONDS - If the economy is growing at or below the pace projected by economists, the bond market is likely to react positively. If GDP figures exceed expectations, and inflation pressures are rising, interest rates may be raised, meaning bond prices will lower, and yields will rise.